Thank You

Error.

Hey, Charlie, wherever you are—and one thing for sure it isn't in heaven—you can rest easy, secure in the knowledge your legacy, if not your corporeal being, lives on.

The Charlie in question is, of course, the infamous Charles Ponzi, who perfected the scheme bearing his name in 1920 or thereabouts, fraudulently took in the equivalent today of upwards of $200 million and wound up, in part due to the efforts of Clarence Barron, founder of this blessed magazine, in the slammer.

Charlie died penniless in 1949 in Rio de Janeiro, leaving behind a trail of broken dreams, empty purses and a template for con men even to this very day some 90 years later.

Indeed, we seem to be in the midst of a full blown epidemic of Ponzi schemes that started some time around the turn of this century and has, if anything, been exacerbated in the past few years. We're thinking obviously of Bernie Madoff, con man par excellence, and Robert Allen Stanford, who via various and sundry shady doings swindled a mere $7 billion and picked up a knighthood from Antigua for his trouble before his gilded roof fell in and he drew a sentence of 110 years.

The latest addition to this rogues gallery is Russell Wasendorf Sr., who ran a commodity-brokerage firm out of Cedar Rapids, Iowa. A native Iowan, Wasendorf moved his operation from Chicago to Cedar Rapids and built a splendid new headquarters for it. The business took a very bad turn for the worse, Wasendorf made a botched attempt at suicide, and his company, Peregrine Financial Group, known affectionately as PFGBest, staggered into bankruptcy.

The firm enjoyed a great reputation in the trade and among its clients (but don't they all?) A preliminary finding is that about $225 million in PFGBest's customers' accounts has gone missing, including money held for some of the same folks who were clients of MF Global, another commodities operation that slunk into bankruptcy and somehow lost track of what happened to $1.6 billion of customers' hard-earned bucks.

Adding to the weird and mysterious things about Mr. Wasendorf's behavior is that he secretly got married in Las Vegas a few weeks before everything went awry. Which no doubt surprised a lot of the citizens of Cedar Rapids who had been invited to attend his wedding in their town in August.

Forgive a personal note, but we have fond memories of Cedar Rapids when as a student at the University of Iowa many years ago we'd happily hitch a ride to that welcoming little city to hear some great jazz concerts by the likes of Duke Ellington. It's hardly the kind of place you'd expect to harbor a plot that old slick Charlie Ponzi would be proud of.

PFGBest supposedly had $225 million of so-called segregated customer funds, when in fact it had only $5 million in total bank deposits, according to the National Futures Association, a trade group that oversees the industry. In other words, the information submitted by the firm to regulators and clients alike was purely phony (if that isn't a mixed metaphor). At this writing it's not at all clear where, if anywhere, those missing funds are lodged.

What is clear is that, according to a complaint filed by the Commodity Futures Trading Commission, Wasendorf Sr. forged signatures and fabricated bank balances. He was generous (not unusual in such cases) and invested in other businesses in Cedar Rapids, including a successful upscale eatery (which, alas, is now closed).

Scratch our head as vigorously as we might, we haven't been able to come up with any glib explanations for the outbreak of Ponzi schemes, apart from the lack of fiscal discipline inspired by a couple of generations of imprudent borrowing, no shortage of gullibility among innocent sheep being shorn and a deadly combo of arrogance and greed among the schemers.

And it doesn't help that despite the fuss and furor about the banks, a JPMorgan can lose—what is it now? $5.8 billion and counting—from a silly gamble and seemingly get absolution from the market for continuing to show quarterly earnings in the billions.

All of which strongly suggests to us that the catharsis of deleveraging has a ways—possibly quite a ways—to go.

MONETARY HAWKS ON BOTH sides of the Atlantic are given to pointing to the great Weimar inflation of the early 1920s as a dire warning of what happens when fiscal discipline is heedlessly abandoned. It is now a hoary cliché that the horrors that befell the population from that inflation have been engraved deep in the German psyche, and explain the fear and loathing that nation has for spendthrift policies that have caused Greece to become the poster nation for impecunious fecklessness.

And it's true that taxes are anathema in the cradle of democracy, especially to wealthy Greeks, so many of whom are masters of evasion, something that understandably sticks in the craw of many Germans who are being asked to kick in to help their beset fellow members of the euro zone avoid sliding further into abject poverty under the implacable weight of their towering debt.

Yet the irony of the German complaint, however woefully unappreciated, is tellingly described by Richard Clogg, an emeritus fellow at Oxford, in the July 5 edition of the London Review of Books. He points out that the inflation that racked Germany in the '20s was a mere bagatelle compared with the inflation visited on Greece as a result of the April 1941 invasion by the Germans, aided and abetted by Italy and Bulgaria.

The tripartite occupation, Clogg states, "set in train one of the most virulent hyperinflations ever recorded, 5,000 times more severe" than that suffered by Germany. Price levels in Greece in January 1946 were—are you sitting down?—more than five trillion—yes, trillion—times those of May 1941. Yet somehow, when the talk turns to inflation, you don't hear a peep about the almost unimaginable effects of the German occupation of Greece.

Beyond the economic damage, as many as 200,000 starved to death between 1941 and 1943 in the famine that was one of the direct consequences of that occupation. The Wehrmacht and Waffen-SS slaughtered and tortured at will and vengefully pursued a scorched-earth policy when they pulled out in 1944, leaving in their bloody wake 1.2 million Greeks homeless and 5,000 schools wrecked.

Clogg comments that "few would insist that the iniquity of the fathers should be visited on the children." And he grants that "postwar Germany has made impressive efforts to exorcise the demons of its recent past."

But he insists that the bitterness, indignation, and frustration exhibited by the Greeks at being scolded by the Germans about their grievous financial shortcomings "should be understood in the context of some of the worst atrocities committed by the Wehrmacht anywhere in occupied Europe."

So the next time someone seeks to summon up the potential horrors of inflation by reciting what happened in Germany in the 1920s, politely agree it was, indeed, awful. But then remind him, just as politely, that it didn't hold a candle to the ravages, human as well as economic, wrought by inflation on Greece, courtesy of the German occupation, in the early 1940s.

Nicely in Sync

THE STOCK MARKET, LUSTING for the slightest reason to pull out of its slump, seized on both JPMorgan Chase's more-or-less bullish forecast and indications that China's economy is still a bit draggy. The rationale for the bounce by Chase is, as alluded to above, confidence that the fallout from the beached whale of a bum trade is over. That seems somewhat arguable, but investors are obviously hot for action and willing to see every glass as at least half full.

As to the tepid news out of China (which conceivably was, as usual, worse than Beijing admitted), the presumption is that the government will get serious about turning on the stimulus and everything will be great. Our reservations about that analysis are summed up in those two graphs that decorate this page: Until the Shanghai index enjoys a real run, we don't think the Sino economy is apt to set any worlds on fire.